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Here Comes That Apple Shi7!
First things first, those who still believe Apple can walk on water are setting themselves up for a big one. I haven't received so much flak about a (to date) correct call in my life. Well, Apple has missed its numbers twice in less than a year, and both times I believe I was the only one that called these misses - at least publicly.
I've noticed that many who take issue with my analysis of Google and Apple truly don't understand what kind of company Google is. To call it a search engine, ad company, or even Android vendor is to demonstrate an ignorance as to both its business model, accomplishments and aspirations. Google is not a search engine, ad company or even a mobile OS vendor, it is a data company and the foremost data company in the world.
I took the time to explain this in detail on the Max Keiser show last week. I think it's worth a listen. Click here for the full show, and see below for the excerpt....
Apple is too widely owned for the wrong reasons, see Watch As 202 Hedge Funds Follow The Bouncing Apple, Till They Don't!!! Of course you will see Apple's margins decrease because they are selling more iPads proportionately and iPads make them less money...
If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter.
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Now, let's review Apple's Q2 2012 Financial Highlights
iPad unit sales are up 84% over this time last year. Very, very impressive. What is not quite so impressive is that iPad revenues were only up 52% over the same period. Why such a discrepancy? Well, the charts above tell the story. iPads are not as profitable as they once were as buyers continually opt for cheaper and cheaper models as production costs are kept high in order to stay ahead of the increasingly capable competition from Android (Nexus 7 @ $199 per unit) and now even Microsoft (see Is Microsoft Back? If So, Apple Had Best Look Out Below!).
Revenue for the quarter was $35 billion, representing year-over-year growth of 23%. Google registered a 35% increase in revenue for the same period. Just saying....
Gross margin was 42.8 percent compared to 41.7 percent in the year-ago quarter. Wait a minute... Isn't that margin number sliding in the wrong direction? It's because they are selling less iPhones as compared to iPads and the iPads are lower margin products, and the margins are getting even lower as competition ramps up and ASP drop while unit costs rise in relation. Of course, I went through this in detail several times.
For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month's valuation note target price (page 10 of 
Apple Margin & Valuation Note) and the price of Apple today (click here to subscribe). I also urge the same for Google using our latest Google Q1-2012 Valuation Summary.
As excerpted:
It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth ******* in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters.
Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.
What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.
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LMAO, Apple kicking ass.
http://finance.yahoo.com/echarts?s=AAPL+Interactive#symbol=aapl;range=5d...
With non-stop money printing, holding a company that is this cash heavy on the books is insane. If the best use of the shareholders profits is to stay in cash, the company is out of growth potential or growth ideas.
The most important thing to remember about Apple is that Steve Jobs is gone.
Steve Jobs was the driving force behind Apple in the beginning.
When he left Apple did a face plant.
His return was the only thing that saved it from the corporate graveyard.
Now that Steve Jobs is gone it will take a near miracle for Apple to continue succeeding without him.
The only thing I kept thinking as I watched Apple succumb to gravitational pull yesterday is that Reggie's smile can't be far behind.
Let me be one of many to say - great call.
that's $199 rabbits for a nexus 7, but you get a 25 rabbit credit for downloads, I ordered one today to compare with my ipad, looks like Apple has a better store that's more lucrative (for the moment) and cheaper (for the moment) and friendlier to the venders-(not for the moment).
I predict Apple will copy and improve on Goog's successful devices too (predation is a two way street).
Ya goog currently owns the search and data processing, but Apple may be able to make more off Goog's free services than goog.
Good read Reggie and thank you!
Someone once said "Apple lovers are like your crazy uncle that molested you but also pays for college."
Apple isn't a one-trick pony (like Netscape). All the teeny-boppers I see (everywhere) carrying an iphone don't want to be "encumbered" with a purse-sized, large screen, don't fit into tight pockets gadget. For them, just right is just the right size. Guys like "bigger is a better tool" but females are the relationship-oriented market that is driving the winning tech bet which is Apple.
Android has its place but it is still way below the salt at the consumer goods table.
Reggie has made great calls, but the work on Apple needs work.
That must be why they're making the new iphone screen larger to match the "large screen" competition.
Yes, some women might prefer the smaller size, but many females and even more men want a bigger screen. I can't easily physically type text on the current 3.5" screen unless I turn it sideways and I hardly have Sausage fingers.
You must also be forgetting the lime screen iMac CRTs from about a decade ago that I thought almost signaled their bankruptcy, only this time Steve Jobs isnt waiting in the wings to save them.
Yes Apple has a lot of cash and great revenues, but they seem to be slowing down in terms of innovation. Time will tell, but they don't walk on water.
Idontcare
Technically, it's iDon'tCare.
Reg just waited at the other end of the court waiting for an easy lay-up...too bad before his lay-up, there were a SHI7-ton of baskets being scored on the other end..... you know, like 300+ p/s rises. It's now 102-2. Team USA vs. Japan Basketball.
Cherry Picking.
fuck apple, fuck the ipad and fuck the iphone. fuck em all.
How about Apple Juice?
Reggie, you are full of shi7!
Will AAPL hit 30,000 this year...or is it next year?
Apple is a "Religion".
A Mac user would never "convert" to Windoze. I assume the phone and pad users are just as "fanatic". (Puns intended!)
It's just, some religions are 108.6x better than others:
sales of the "Good Book" easily clear $1 billion annually.
APPL Sales/Revenue 108.6BA Mac user would never "convert" to Windoze.
As a Mac user since 1986, there has never been a valid reason to "convert." PeeCee people just never get it.
yep, too bad Bill got that Contract and not [somebody like] Steve.
I predict it will be 2 o'clock twice today and in fact everyday. Well of course a technological gadget would feel margin compression at some point and you will be right like the broken clock. And, if Apple has finally shot it's R&D load and fails to come out with distinct new technologies and continues to only enhance the same old technologies they will fall by the way side like all tech companies that fail to innovate. Of course everyone was sure the IPAD was going to be nonconsequential so how did that work out? Is that their last successful product launch? If so, hello Apple 300. If not then Reggie will go into hiding until the next product cycle matures and he will be right again. It still must be pointed that Reggie has been "warning" about Apple since 190. Well congrats buddy you only missed 400 or so points. You come out on the lull quarters yet on the quarters the stock zooms from unbelievable results you must be off on your Yacht as there is narry a peep. Like all other's you are never wrong, just early. Congrats, Apple is now circling the drain never to be heard from again.
Reggie..hire a publicist. If for no other reason, to create the illusion that there is someone other than yourself patting you on the back.
Oh man, as a former do-it-yourselfer-pr-guy, what a rabbit punch. Of course I was a little more subtler. I wrote my Bullshit one would see professional PR releases with no author and send them to the various trade rags. I swear, I never hacked at any fruit with a Sword.
+1
For as long as I have been coming here, Reggie has been spouting "Apple is Doomed!" Damn, I have heard that for the last twenty years already.
However, I really would like to know what the margins are on Google's Android? Oh wait...
As a developer, all I can say is that I am now witnessing incredible corporate demand for apps for the iPad and not Android. Of course I also see projects that want it to run on both. These are usually not very sophistacatd or media driven apps. We then use Sencha and PhoneGap for those. Soon I will replace my very old MacBookPro with a new 15" Retina one. I think my current MacBookPro is over six years old! And Apple has always fixed it, no questions asked for free! Yes I had extended warranty, but ever after it ran out they still replaced my display. Late last year I gave my old Pro a nice upgraded with an SSD Drive... wow... felt like a new computer.
Apple is no longer just one product. It is an Ecosystem and a lot of money is being invested in facilities and the Cloud.
Just saying.
From my development standpoint, both Ipad and Android apps are losing propositions. I'm skipping them both and starting to focus on the bane of all of those devices, the mobile web. HTML5 isn't quite supported well enough yet, but it's coming.
Reading this site on my iTouch is quite a hoot. My Android tablet is only marginally better.
I've had 2 different mac's fixed free too. Looooong out of warranty & having no extended. Every corporation in the USSA could take a lesson from AAPL. The way I see it, they still have a moat. One thing for sure, I'd NEVER go back to the wasted hours & blue screen of death!
/OT: Nice call on PEI thanks Reggie.
For convenience, you ignore the same phenomena we saw last year. Namely the tendency of consumers to wait when a new generation is about to be released by Apple, in this case iPhone 5.
This has nothing to do with Google. But all the developments in the Samsung patent litigations sure do and the knock off kings seem to be hurting on that front at this point in time.
Why not present the full picture?
The full picture is that Apple has lost market share in both phones and tablets, and has fell behind significantly in the OS technology race.
The only way for it to get back in the running is to drop those fat margins. Name brand aura can only run but so far. The high margin product (iPhone) is signficantly outclassed by almost all of its competition and the only way to reverse that trend is to spend more on the product. Android market share is still growing strong, still outgrowing that of Apple, and is now demonstrably higher than 50% stateside and world wide. This is up from near zero just a few years ago.
Meanwhile, the more tablets Apple sells as compared to iPhones, the lower the margin and pro rata profit will be per unit of revenue.
Once again ignores that the market itself is is growing and is selective about when he picks market share. My droid incredible phone sucked. My iPhone 4s is great. Are earnings up YOY? Yes. Phone sales? Yes. Cash? Yes.
"Fell behind significantly in the OS technology race"??
BULLSHIT. Consumers don't care about "technology", they care about products they can actually use and derive satisfaction from.
Android does a great job targeting geeks. Oops-- too bad geeks only comprise a small percentage of the overall marketplace.
That is something that the Apple Haterz will never grasp.
Another thing: For products like the iPod or iPad, Apple's market share and gross margins could only shrink from where they were. When you start at 100% market share, you have nowhere to go but down. Doesn't take a genius to figure that out.
Apple's value lies in their ability to create NEW products and NEW markets for their products. Criticizing them for declining market share and declining margins in product categories THAT THEY CREATED is like criticizing water for going over a waterfall.
There is only one legitimate question facing Apple right now: can they sustain their track record of developing new products and new markets now that Steve Jobs has passed on? That's the question we need to be asking.
Why doesn't my iPhone have 4G speeds?
Why isn't my screen big like the Samsung's?
Why isn't my phone as fast as the Samsungs?
Why couldn't I create a hotspot?
How do I customize my phone like those other guys?
How do I get my phone to take pics and HD vids like the Samsung and HTC One X?
.....
And most importantly, since when do Geeks make up 56% of the market, which Android currently owns????
Apple never had 100% market share in tablets. Bill Gates and his hardware OEMs were pushing tablets to retail and vertical enterprise guys since the nineties. This is more of the blind-sided "Apple is everything" mantra. People such as yourself actually believe Apple invented the tablet 10 years after the fact becaue Apple markets better then their comp. Many of my friends automatically thought the iPhone was the best phone just because Apple marketed better with shiny new cases. These same people spend a lot of time asking me for hotspot connections or to send me pics since mine came out better, or to use navigation to find a spot. Eventually, functionality will win out if the company knows how to get the word out. Google knows how to do this.
Steve Jobs likely stopped contributing usefully to Apple some time ago. The man deteriorated from terminal cancer, so its not likely he was able to much. I know this from experience. The fact of the matter is that Cook had been running the show for some time, materially before it was made public and official. Rest assured as Apple's results start to hit reality Cook will be blamed for it and Jobs will be idolized, but in the real world of facts, the blame shouldn't be put on Cook so much as the competitive reality simply caught up to Apple and brought its numbers back into the mean.
You are spot-on on this one Reggie. I have the distinct impression that your critics have never heard about Netscape (97% market share, at one time) and a bunch of other [disappeared] IT companies that tried the route of IP protection and high margins rather than continuous innovation. It's a very old story and the reason that monopolies never last long.
On top of that, open source created a whole new continent upon which new business models could be built ... and Google just keeps on growing upon that new foundation (along with the other innovation you mention: cost shifting).
Casio G'z One....yea try taping your IPhone OR Samsung to the nose of your surfboard and see how it lasts, bitchez!
Wow...does that mean that I shouldn't try to dial my phone with the nose of a surf board?
I did not know that. thanks for the heads up.
Spread the word.
ha ha ha, RM good one! Impressive analysis of the Google big data business model.
Yes the Apple bean stalk seems to have reached maximum height. And maybe as you say the very ambitious Google model is like the ice berg : only partly visible.
All the goodies up ahead. Impressive boomerang effet hidden to all eyes until it emerges out of the water.
So next quarter Android MS of tablets will be a majority....that's a good flag to look for!
See ya in September on this one for a rain check!
Reggie please stop it was $275 per share in October 2010 when you said it was done, it is down to $570 in premarket off a close to $10B bottom line number and you are claiming victory. If this has been a correct call I would hate to see the ones you missed. We should be able to pull the video on CNBC if you would like. Are you saying you did not go on CNBC in 4Q10 and recommend to stay away from APPL at a price point around $275.
Apple's big mistake was not splitting the shares. If they had done a 1:10 split, the stock would be down $2.80 in pre-market from $60.00 or in a 1:5 split it would be down to $114 from $120. But if one is playing options which many people did, a drop from $600 to $570 is the final earth quake from California. Especially for those who sold Naked Puts yesterday.
For me, Apple has fallen out of favor when it was revealed that Apple retail workers make slightly more than Amazon's warehouse workers. Apple bragged about creating 33,000 jobs in the US when questioned about using slave labor over in Asia. It turns out they are using Slave Labor here in the USA. It was almost on par with the foolishness of Mickie D's announcing they will hire 50,000 employees in 2012. They have to since their turn-over is so great from people who work under a high pressure firehouse making smelly fried burgers for starvation wages. In the vaunted Retail stores of Apple, there was two major secrets.
The wages were on Par with Mickie Ds yet the caliber of employees , until recently, consisted of highly educated young people who thought that Apple Retail stores were a side door into the great Apple itself. They didn't know there was a firewall between the retail stores and the corporation. They know now. The big secret that Apple is not telling us is that turn-over in the stores is increasing. Since their main outlet for selling their products is online and retail stores of their own, they have a potential problem that is brewing. Hell Salespeople in a Verizon or AT&T store make 2x as much as a Apple Salesperson.
Their major weakness is in building a business model around the use of slave labor and a supply chain that could easily be disrupted at any time. Labor costs are rising. Recently Apple had to raise the pay of it's retail workers from Starvation to mere poverty. However that's going to cost them in increased expenses. Further, there is a limit to how many hardware upgrades people will accept. At what point will they say enough is enough? The market is growing but people are jumping in with both feet. Apple will survive since they have feet firmly planted in the enterprise market which is why iPad sales went up almost 20% , but not at the level it's at now.
Foxxconn is investing in 1 Million robots to more or less automate it's factory. Apples products lend itself most to Automation. So here is a first, Apple will outsource production to Robots while holding 117B in cash and Cash equivalents , 85B of which is held in offshore accounts to avoid repatriating the cash and paying corporate taxes. In addition , a recent expose showed that Apple was using a Tax avoidance strategy that made 11B in profits go poof from their income statement and balance sheet in the last 2 Years bringing their effective tax rate down to 13%. This was after indignantly announcing that Apple truly pays more taxes than any other corporation at 26%. Little did Shareholders now or anyone else ( eh Reg) , they were making more money, they were just hiding it.
So if one looks for the reason why a huge cash surplus has been built and never deployed is that Apple's business model relies on Slave Labor, Tax avoidance ( I say that politely) and partners who were willing to take on huge capital costs to attempt to keep labor costs down just to keep Apple's business. It isn't Apple's Gross margins loss of less than a 100 BPS, which are healthy as hell considering they are a hardware company, it's how they got those margins. That's why it's a high risk stock. Margin compression may be more of a threat internally than externally.
Apple is a scam, period.
Slave labor??? Are you fucking high?? Do you know how many kids would kill to work in an Apple store? This is a great, easy, fun job where you get to play with toys all day. When one quits, there is a line out the door to fill the opening.
There is a thing called SUPPLY AND DEMAND. Why should Apple pay more than the market will bear for their Apple Store labor?
The question you should be asking is why can't our economy create MORE companies like Apple? Then maybe the supply of these types of jobs would go up, and put positive pressure on wages.
Criminey.
"Slave labor??? Are you fucking high??"
No but apparently you've been blinded and are deaf too. Just because they had , emphasize HAD, kids (22+) lining up doesn't mean that's license to steal from them. Even Mickie D's can get people to line up during a recession. Had you been paying attention to the news, the lid blew wide open on the wages that Apple was paying those young adults. It 's just a little sickening that the CEO cashed in 54M in stock or 100,000 shares of his 1.2 million while people were living with Mom to go work full time at a Apple store that has no future for the next generation.
The key to a good company, that has legs, is how it treats it's employees ( all of them) , shareholders and customers. Shareholders are a pain for Apple but they have done well if they don't mind unrealized gains or paper wealth that could get crushed. Employees not at the top haven't done so well. They liked working there when Jobs was alive. We'll see how it goes with Cook in there, but I do know the publicity cost Apple a 20% across the board raise in it's retail stores. It's hard to justify that shit when there is a 117B on the balance sheet plus another 11B hidden.
The cost of keeping that much cash and not investing in the business or the development of it's employees, especially in a ZIRP environment, is going to lead to a large negative return that one will eventually be able to quantify. Just becuase everyone else treats their employees like shit, doesn't make it right for Apple. That luster on the Barnd name can disappear real fast. Even Uncle Warren says "it can take 20 years to build up a brand name and only five minutes to lose it". If that brand is misused the degree it is now and no more Steve Jobs to run interference, that whole shebang could go Poof just about as fast as your bullshit.
Bucky Panzie... May your next airline flight be piloted by the cheapest pilot supply and demand can provide.
When your old ticker needs a stent or two perhaps a minimum wage cardiologist will do...
You have been brainwashed!
Bucky,
Don't even open your jivea$$ mouth unless you've actually worked in an Apple retail store, and if you have, you're a fuc**g liar! Or a lying troll...
I have first hand experience and I can tell you that everything the previous poster said was true.
So f off and stop perpetuating fantasies and myths and buying into the PROPAGANDA.
And Reggie, thank you, I hear what you're saying, you're absolutely right. Ice Cream Sandwhich is killin' it! Foshizzle!!!
http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?_r=1&pagewanted=all
He really meant slaves, slaves making your ijunk in China. Does that matter to you? Apple is not alone in this but how many people really take issue with slavery when they are the beneficiary?
I'm saying Apple would be feeling pressure within 8 quarters of of the Oct. 2010 earning call. Now count the quarters, look at the evidence and think about whether I was right or not. I never said they were done, I said the margins on tablets would contract, and that they will lose market share.
Pull the CNBC video, pull my site's comments, then apologize.
Reggie is correct. Apple is to the young generation what Harley Davidson was to the old.....i.e. a large segment will blindy buy the products to be "cool", even if it is not justified by price or quality. Look at Apple's markups on their shit. At least 20% due to name alone. If you remember Apple tried for years to monopolize (and rape) its customers. Apple has nowhere to go but down. They used the same business model as Harley, and Apple will eventually suffer the same fate. Not go out of business, but they will be surpassed. Arrogance and greed only goes so far.
This is nonsense. I don't have to think about it, you've been bearish more than a 100% ago. You are being very selective, you've been wrong about unit sales. Make your call right now on 4th quarter earnings and put your money where your mouth is. Instead of popping up on a quarter that everyone knew was going to be soft due to product cycles. You could sell apple in 10 minutes after earnings and still be up how much ytd? What does this compare to the hedge fund average? What does this compare to effing CALPERS, who pays for the so called best talent in the world. 117B in cash and made over 9B, what is this YOY?
You're banging your head against a wall with this topic. With Reggie's Floyd Mayweather like humility and his Clintonesque ability to cherry pick information...it's a fruitless venture.
You'd have a better chance of teaching a walrus to perform brain surgery than to get Reggie to look at any of his past post with anything other than self-glorifying awe.
Yep, he keeps saying he's right when he's been nothing but wrong. Post your trades/investments in advance with actual dates. He won't because he will expose himself. I do it, it ain't that hard.
reputation compression...good call.
Lets see what happens when iphone 5 is released!
Bottom Line: If you ignored Reggie - you made money!
youz a foo!